Updated October 5, 2026. Quick answer: Yes. California taxes trust income, and the statute applies the tax to a trust whose fiduciary or beneficiary is a resident, “regardless of the residence of the settlor”. A trust with only nonresident trustees and beneficiaries still owes tax on California-source income.
How California treats trust income
| Item | What the documents say |
|---|---|
| Treatment | California taxes trust income to the trust itself, and a trust files Form 541; the statute says income “is taxable to the estate or trust”. Income that is distributed is handled through the distribution deduction. |
| Who counts as a resident trust | The test looks at the fiduciary and the noncontingent beneficiaries, not at where the settlor lives. The source says: “depends on the residence of the fiduciaries and noncontingent beneficiaries”. If all trustees, or all noncontingent beneficiaries, are California residents, all trust income is taxable to California. |
| Rate on trust income | Trusts use the 2025 Tax Rate Schedule, which runs from 1.00% to 12.30%. A Behavioral Health Services Tax of 1% applies to taxable income over $1,000,000. |
| Distribution deduction | California allows a deduction for amounts distributed to beneficiaries, equal to the amount distributed or “the distributable net income, whichever is smaller”. The instructions refer filers to the federal Form 1041, Schedule B rules for the computation. |
| Nonresident trusts | Income from California sources is taxable regardless of where the fiduciaries and beneficiaries live. The source says: “Income from California sources is taxable regardless of the residence”. Schedule G apportions other income when trustees or beneficiaries are a mix of residents and nonresidents. |
| Return to file | The fiduciary files Form 541 for a trust with gross income of more than $10,000 or net income of more than $100. For a calendar year trust the 2025 return and Schedules K-1 (541) are due April 15, 2026. |
A $10,000 example
The tax on $10,000 of taxable income a trust keeps depends on the bracket it lands in. Taxed wholly at the lowest printed rate, 1.00%, the tax is computed as $10,000 x 1.00% = $100; taxed wholly at the highest, 12.30%, it is computed as $10,000 x 12.30% = $1,230. The state’s own schedule decides which applies. Federal tax on the trust’s income still applies.
Income the trust passes out to a beneficiary is handled as the distribution deduction row above describes.
What changes in 2026
The latest documents read print no 2026 change to how trust income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The federal brackets a trust faces are laid out in trust tax brackets versus individual brackets, and capital gains that a trust keeps are covered in capital gains stay in the trust. The IRS explains the federal return in the About Form 1041 page.
Related: how California taxes retirement income, whether California taxes pensions, what a living trust costs in California, trust income tax by state, and federal trust tax brackets.
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Answer againSources
- 2025 Instructions for Form 541, Fiduciary Income Tax Booklet (Franchise Tax Board): https://www.ftb.ca.gov/forms/2025/2025-541-booklet.html
- Revenue and Taxation Code section 17742 (California Legislature): leginfo.legislature.ca.gov
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.